Debt-Free Journey Series

The purpose of the debt-free interview series are to help others learn strategies for paying off or avoiding debt.

My name is Dana, and I am the founder of @Budgetadvisorblog. This is the story of when I took on a car loan at 18 years old, the mistakes I made, and the lessons I learned from it. Keep reading to learn what happened!

Where it all started:

I had a very old Chevy Malibu that kept breaking down. I was afraid to drive it because I had no idea when it would next break down. It was a stressful period because I relied on my car 100% to get to work. I was only 18 years old at the time and knew I needed a different car.

Basically one day, I drove past a used car lot on my way to work when I saw the car of my dreams, a 2006 Scion TC. As soon as I saw it, I thought, I need that car. I was ready to replace my Malibu with a functioning car.

After work I drove back to the lot and told them straight up that I wanted to purchase the Scion. The price was about $6,000 but I had figured after the trade in and down payment it would be a small debt owed. The sales person told me that I had zero credit so my APR would be very high, set at 24%. I was ready to buy the car even though I could not pay for the full car out of pocket.

The mistakes I made:

  1. First of all, I made the mistake of not budgeting out how much I could afford as a down payment. I just gave them as much money as I could so I could have the car. I ended up putting down $2,000. I had no money left to my name after this transaction. I remember having less than $50.

2. I did not negotiate when there were things to be negotiated about. There was a crack on the front windshield and a missing plastic cap on the review mirror. I could have knocked it down a couple hundred dollars if I had known to say something.

3. I did not try and sell my Malibu for a better price. I purchased the Malibu for $1,500 and ended up trading it in for $500. I should have either sold it separately, or, asked it to be traded in at a better price. (With all credit due, it was breaking down so it was not worth much.)

4. I did not look at the actual value of the Scion TC on Kelly Blue Book. This would have helped me to see how much it was actually worth and then I could have used that information to lower the asking price.

How much was the debt?

The total car loan was $4,802.

How long did it take to pay it off?

It took me roughly 18 months to pay it off. The minimum payment was $256 per month.

What was my pay off strategy?

At the time, I just knew if I made higher monthly payments, I would pay it off faster. I had no crazy strategy to follow. At the time I did not know what the Debt Avalanche was or the Snowball Method, I just simply paid as much as I could.

At first I started by paying the minimum $256 payment, but when I had extra income, I would pay up to $300 to $350. That it what helped me to pay it off so soon.

Was this a bad investment?

In my opinion it was not a bad investment, regardless of the mistakes I had made and here is why:

  1. My car was breaking down and I needed to replace it quick.
  2. I purchased a used car so the loan was thousands less than what it would have been with a brand new car.
  3. I still drive the same car today and it is all paid off. The car never had any real issues besides changing the tires and basic stuff like that.

With that said, this car helped me get to where I am now. I used my debt as leverage to then find a new job, have the ability to drive to school and get an education and feel at ease knowing that it wouldn’t break down.

Key Lessons:

  1. Not every debt is a bad debt. Use your debt as leverage to get you in a better position in life.
  2. PLAN before making a large purchase. Use a budget planner to calculate how much you can afford. See if you can afford the monthly payments without draining your savings.
  3. If you take on a debt, have a debt pay off strategy. Use my budget planner that has a debt pay off plan included.
  4. Before buying a car do these things: Evaluate the type of car you need, and the price range you can afford. If you are buying a used car consider trading in your car but ask for a higher trade in if you car is worth more. Lastly, valuate the worth of the car you are buying and negotiate the price down.

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Published by Dana Johnson

Hi, my name is Dana and I help teach the value of budgeting & saving early on in life so you can achieve your financial goals.

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